Does Job Insecurity Affect Household Consumption?

Bank of England Working Paper No. 220

38 Pages Posted: 4 Jan 2005

See all articles by Andrew Benito

Andrew Benito

Bank of England - Domestic Finance Division

Multiple version iconThere are 2 versions of this paper

Date Written: May 2004

Abstract

This paper confronts implications of precautionary saving models with microdata on British households. The results provide support for the central proposition that job insecurity depresses household consumption levels. A one standard deviation increase in unemployment risk for the head of household is estimated to reduce household consumption by 2.7%. Interpreting the spread of the distribution across workers in job insecurity levels as consisting of four standard deviations, this implies that moving from the bottom to the top of the distribution gives rise to a reduction in consumption of 11%, ceteris paribus. This effect is estimated to be greater for the young, those without non-labour income and manual workers, a pattern also consistent with the predictions of precautionary saving models. The paper then studies the propensity for households to purchase durable goods and finds durables purchases to be delayed significantly by higher unemployment risk. The paper therefore demonstrates that job insecurity affects aggregate demand through both non-durable and durable expenditure, controlling for other influences including estimated permanent income.

Keywords: Consumption, precautionary saving, job security

JEL Classification: D12, E21

Suggested Citation

Benito, Andrew, Does Job Insecurity Affect Household Consumption? (May 2004). Bank of England Working Paper No. 220, Available at SSRN: https://ssrn.com/abstract=641181 or http://dx.doi.org/10.2139/ssrn.641181

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Bank of England - Domestic Finance Division ( email )

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